The archived blog of the Project On Government Oversight (POGO).

Feb 12, 2009

Five years ago, the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) began investigating whether KBR was among several companies that paid $180 million in bribes to win contracts to construct a natural gas liquefaction plant in Nigeria. Last September, former KBR executive Albert Jackson Stanley cut a deal with the SEC and DOJ, and now KBR and its former parent, Halliburton, have done the same.

Yesterday, KBR pleaded guilty to violating the Foreign Corrupt Practices Act (FCPA). (Click here to see the plea agreement.) Halliburton and KBR also agreed to pay the government $579 million (due to an indemnification agreement signed when the two companies split in 2007, KBR only has to pay $20 million of that), and KBR agreed to retain a corporate monitor for a period of three years. According to the plea agreement, the DOJ will choose the monitor from candidates proposed by KBR, a selection process that will hopefully avoid the controversy that surrounded another corporate monitor deal involving a certain former U.S. Attorney General.

The plea in the Nigerian bribery case follows last week's outrage, when it was announced that KBR had been awarded a $35.4 million U.S. Army Corps of Engineers contract to build an electrical distribution center in Iraq despite being under investigation for causing the electrocution deaths of several U.S. soldiers.

How can this be? The Federal Acquisition Regulation (FAR) clearly states that a conviction or "adequate evidence" of bribery may be grounds for suspension or debarment from federal contracting. The contract award was announced on January 28, and KBR pleaded guilty to bribery yesterday. Score one for KBR's hard-working legal department, which successfully held off the guilty plea until after the contract was awarded. On the other hand, what about there being "adequate evidence" of bribery? The investigation had been going on since 2004, and a high-ranking KBR executive was convicted in the matter last September, long before the Iraq contract was awarded.

Furthermore, the FAR contains several other catch-all grounds for suspension or debarment, including a conviction, civil judgment, or adequate evidence of "any other offense indicating a lack of business integrity or business honesty" and serious violations of the terms of a government contract. Certainly, the Nigerian bribery incident and/or the electrocution investigation would have satisfied one or more of these conditions. As far back as September, the Pentagon had strong doubts about KBR's competence. That month, David J. Graff, commander of the Defense Contract Management Agency, wrote a letter in which he strongly criticized KBR's "continuing quality deficiencies" with regard to its electrical work in Iraq and wrote that "many within DoD have lost or are losing all remaining confidence in KBR's ability to successfully and repeatedly perform the required electrical support services mission in Iraq."

POGO wonders what mystical power KBR holds over contracting officials at the Pentagon. KBR gets off with a $20 million slap on the wrist in a massive bribery scandal while being investigated for multiple deaths linked to its work, and it is allowed to continue doing business with the government. Despite having a long track record of misconduct and attracting controversy like a water bottle attracting displaced koala bears in Australia, it's business as usual for KBR.